Trading for the future: Signaling in permit markets

Bard Harstad and Gunnar Eskeland

Journal of Public Economics, 2010, vol. 94, issue 9-10, 749-760

Abstract: Permit markets are celebrated as a policy instrument since they allow (i) firms to equalize marginal costs through trade and (ii) the regulator to distribute the burden in a politically desirable way. These two concerns, however, may conflict in a dynamic setting. Anticipating the regulator's future desire to give more permits to firms that appear to need them, firms purchase permits to signal their need. This raises the price above marginal costs and the market becomes inefficient. If the social cost of pollution is high and the government intervenes frequently in the market, the distortions are greater than the gains from trade and non-tradable permits are better. The analysis helps to understand permit markets and how they should be designed.

Keywords: Tradable; permits; Time; inconsistency; The; ratchet; effect; Rent-seeking; Plan; versus; market (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0047-2727(10)00027-7
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Trading for the Future: Signaling in Permit Markets (2010)
Working Paper: Trading for the Future: Signaling in Permit Markets (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:94:y:2010:i:9-10:p:749-760

Access Statistics for this article

Journal of Public Economics is currently edited by R. Boadway and J. Poterba

More articles in Journal of Public Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().